TransUnion’s first-ever personal loan forecast found that both secured and unsecured loans will continue to see balance increases and stable delinquencies through this year. The strong performance of personal loans is expected as the popularity for the products continues to rise among prime consumers. TransUnion released the forecast on Wednesday.
Since Q3 2013, the number of consumers with personal loans has grown 18% from 22.5 million to 27.34 million as of Q3 2015 (latest data available), representing total balances of $82.52 billion in unsecured loans and $165.46 billion in secured loans."During and immediately following the Great Recession, consumer demand for both secured and unsecured personal loans grew,” said Jason Laky, senior vice president and consumer lending business leader at TransUnion. "As new, well-funded online lenders and ‘fintech’ startups entered the market, personal loans had a broader appeal for consumers across all risk tiers. Our personal loan forecast serves to help both traditional and new lenders better understand how consumers are using these products." The forecast defines unsecured loans as cash loans repaid over short terms, typically one to five years, which have no collateral attached to them. Secured loans are defined as loans that are secured by some sort of collateral, such as furniture or motorsport equipment, but not home equity.Inside the Unsecured Personal Loan ForecastTransUnion’s forecast projects the average unsecured loan balance will continue to grow in 2016, but the growth will occur at a slower rate than previously observed. From year-end 2014 to year-end 2015, the average unsecured loan balance is expected to have grown 7.1% from $6,757 to $7,235. TransUnion’s forecast projects that balance growth will slow to 5% from $7,235 at year-end 2015 to $7,599 at the end of 2016.Since Q4 2012, average balances for unsecured loans have increased every quarter. Loan balances have grown more than $1,300 from the end of 2012, when the average unsecured loan balance was $5,908.“In the past two years, consumer adoption of unsecured loans has increased,” said Laky. “As more consumers with prime or better credit scores use unsecured loans to finance their purchases, average balances have grown each quarter. Our data also indicate that consumers across all risk tiers are accessing and using these loans while also limiting defaults.” Unsecured loans have experienced growing popularity in the last several years. As of Q3 2015 (the latest data available), 13.72 million consumers had an unsecured personal loan balance. Growth in unsecured loans is largely attributed to the prime and better risk tiers, i.e. those with a VantageScore 3.0 credit score higher than 661. In Q3 2015, 6.46 million consumers in the prime or better risk tiers had an unsecured loan balance, a growth of more than 2 million additional consumers from Q3 2012 (4.43 million).Of the 13.72 million consumers with an unsecured personal loan, 3.51 million consumers are in the subprime risk tier (those with a VantageScore® 3.0 credit score lower than 601). This is a 9.8% increase from last year and 700,000 more subprime consumers than what was observed just three years ago.As growth continues, the unsecured personal loan delinquency rate (the ratio of borrowers 60 or more days past due) is forecast to remain steady at 3.54% (barring seasonal fluctuations) from year-end 2015 to year-end 2016. Unsecured personal loan delinquency rates remain well below recession levels, when the delinquency rate peaked at 4.81% in Q4 2009.Inside the Secured Personal Loan ForecastAverage secured consumer loan balances are also expected to rise in 2016. After peaking in Q3 2009 at $19,209, outside of seasonal variances, balances continued to drop steadily until Q3 2014. At that time, a steady rise in loan balances began, which TransUnion expects will continue in 2016.“When the economy is stronger and consumers have more disposable income, consumers are more likely to purchase larger items, such as boats or motorcycles, using secured loans,” said Laky. “The low unemployment rates of recent years, coupled with continued low delinquencies, indicate secured loans will continue to be an important financial product for consumers in the coming year.”The secured personal loan delinquency rate (the ratio of borrowers 60 or more days past due) is forecast to increase slightly from 3.66% in Q4 2015 to 3.72% to close 2016. However, this is well within the delinquency rate range observed the last five years.As of Q3 2015 (the most recent data available), 13.6 million consumers had a secured loan balance, and 3.34 million of these consumers were in the subprime risk tier. This is an increase of 1.8% from Q3 2014, but remains 20.7% lower than the subprime levels observed in Q3 2009. More than 7.13 million consumers in the prime and better risk tiers had a secured loan balance in Q3 2015, an increase of 5.7% from 6.74 million in Q3 2014.